Asymmetries and state dependence: The impact of macro surprises on intraday exchange rates

► Exchange rates respond asymmetrically depending on country origin of news. ► Forward-looking news is especially important in Japan during ZIRP. ► Japanese macro news is as important as US news in influencing the exchange rate. ► Asymmetric exchange rate responses are evident across Japanese business cycle stages. This paper investigates the possible asymmetric response of 5-min intraday JPY/USD exchange rates to macroeconomic news announcements during 1999–2006 when the Japanese money market interest rate was effectively zero. This period provides a unique institutional setting when interest rates may rise but not decline, thereby constraining both endogenous policy reactions to news and private market expectations. Asymmetric responses to news, to the extent that they are important in exchange rate markets as they are in equity markets, would seem particularly likely to be evident during this period. We consider several ways asymmetric responses may be manifested and linked to macroeconomic news during this unusual period. We assess whether the intraday exchange rate responds differently depending on whether the news is emanating from Japan or the US; we consider the state of the business cycle; and we distinguish between “good” and “bad” news.